Capital investment in renewables this year should overtake that in oil and gas, according to a major energy analysis company. High spot energy prices in Europe have seen payback periods for renewables assets (the time taken to recover all invested capital) of as little as one year.

Capital investments in renewables have also increased significantly and are set to reach $494 billion in 2022, outstripping upstream oil and gas at $446 billion for the year, according to Rystad Energy research. This is the first time that investment in renewables is set to be higher than for oil and gas.

The company noted that until the current crisis, solar and wind returns “have been unspectacular, relying on subsidies to get projects over the line”.

Rystad demonstrated the drastic change in the commercial reality of a renewable project by considering a ‘generic’ 250MW solar photovoltaic asset in Germany. With a spot price of €50/MWh, the expected post-tax return would be 6% with a payback period of 11 years. The model assumed higher prices in the start-up year, which dropped each year to the long-term assumed prices.

A price of €350/MWh saw a payback period of just one year, while a price of €180/MWh would result in five to six years. This final figure is in line with the European Union’s proposed price threshold. Average monthly spot prices for energy across Germany, France, Italy, and the UK in August were over €400/MWh.

A spokesperson for Rystad Energy added, “The relatively low operating costs of renewables strengthens their case as the returns would remain robust even if the long-term power prices were to drop significantly.”